Is the telecom sector staring at disruption after 5G auction?

Seven days and over 40 rounds later, Reliance Industries Limited has emerged as the top bidder in India’s first 5G spectrum auction. While 5G was the auction’s centrepiece, the government had also offered 72.09 GHz of spectrum across 10 frequency bands for sale.

At Rs 1.5 trillion, the total revenue figure is the highest amount earned since mobile auctions began in 2010. The quantum of spectrum on offer was also the highest. But, the government was able to sell only around 35 per cent of the spectrum on offer in value terms, given the total figure of Rs 4.3 trillion as per the base price. Communications Minister Ashwini Vaishnaw said that based on the bids, the telcos have to shell out Rs 13,365 crore as their first instalment in a few days.

Shelling out more than double the amount that Bharti Airtel did, Reliance Jio emerged as the top bidder at Rs 88,078 crore for 24,740 MHz of spectrum. Apart from the 1800 MHz band and the 5G bands of 3.3 GHz and 26 GHz, this also includes the crucial 700 MHz band, which is considered critical for 5G. 

Jio was the only player that bought spectrum across bands that are considered critical for efficient 5G services globally. This is crucial because Jio is going in for an advanced standalone 5G network, unlike its rivals, who have opted for a non-standalone network.

Airtel appeared more circumspect, buying 19,876 Mhz of spectrum in various bands, including 5G, for Rs 43,084 crore. It kept away from the crucial 700 MHz band.

Vodafone Idea spent far lower at only Rs 18,799 crore for 6,228 MHz of spectrum. The new entrant, Adani Enterprises, whose entry into the sector took many by surprise, spent just 212 crore rupees for bagging 400 MHz in the millimetre band in six circles, including Gujarat, Mumbai, Karnataka, Tamil Nadu, Rajasthan, and Andhra Pradesh. Adani purchased these airwaves for setting up captive non-public networks across its airports and ports.

Make a bar graph using the attached data. Use only the amount paid numbers/data.

So, where does this leave the sector as a whole? Reliance Jio bought 10 Mhz across all 22 circles in the 700 MHz band, which will give it a distinct advantage in 5G because of its huge coverage and requirement for fewer towers. It can cover the entire country with this band.

According to BofA Securities, with regard to 5G rollout and market share gains, RIL is the best-positioned player, followed by Airtel.

The advantage of standalone 5G is that Jio would be able to offer true low-latency applications. Meanwhile, it will be difficult for its peers to offer the same given the lack of spectrum. Overall, BofA Securities finds that all of this could help Jio poach high-end customers from its competitors. 
 

Please include the byte: Mahesh Uppal, Director, ComFirst (India) and Telecom Consultant says, too soon to say whether there will be a disruption in the sector as 5G is not a logical extension of 4G. Reliance acquiring 700 mHZ can help it rollout 5G at a much wider scale. Though Jio is dominant, it will not be a walkover for one single company and duopoly is not imminent. 

According to Nomura, the 700 MHz band could also potentially give Jio an advantage in terms of network quality, especially indoors. Airtel will likely come under pressure to have a network similar to Jio if the latter is able to create a significant differentiation in network quality for 5G. According to BofA Securities, this raises the probability of Airtel acquiring the 700 MHz band in the next auction, where the pricing is likely to be similar to that at the recently concluded one. All of this could translate to capex investments being higher for Airtel. Overall, 5G-related investments are likely to remain high for a couple of years.

Meanwhile, Vodafone Idea has restricted its 5G plans to priority areas. This was evidenced by the fact that it only acquired 5G spectrum in 16-17 priority circles. Also, given significant delays in fundraising, capital expenditure constraints, existing gaps in 4G coverage, and just 12-15 per cent share of spectrum in the 5G bands, Nomura projects that Vodafone Idea's 5G rollout would likely lag behind that of its peers. This could lead to further accelerated market share gains for Jio and Airtel.  

So, will the telecom sector see another disruption led by Jio, like the one it saw with its entry into the business?

Prashant Singhal, Global Leader Emerging Markets TMT, EY says the telecom sector is not in for another disruption. The sector is looking at consolidation and better innovation. The pricing may remain the same and may be marginally discounted to 4G, but the bundles could change. It could be lead to higher ARPU for the operators. Last-mile issues in home broadband could be solved and there could faster broadband rollouts.

In all likelihood, we may not see any disruption. And, there won't be any price wars either. Nomura says that Indian telcos have refrained from charging a premium for 4G plans when compared to 2G and 3G ones. However, with higher speeds and the initial uptake coming from premium customers, it sees a potential for telcos to charge a premium for 5G when compared to 4G. In fact, 5G premiums might provide the next leg of average revenue per user uptick for Indian telcos.